Today, shares of UWM Holdings (NYSE:UWMC) are trading higher by 19% after the company announced that its controlling shareholder, SFS Holding, would terminate its planned secondary offering of Class A common stock. The original plan for the offering would increase the public float by 50% in a bid to increase liquidity for indices and institutional investors. Today, UWM also stated that it would allocate $100 million of its existing stock repurchase program to purchase the shares that SFS Holding would sell.
What Happened With UWMC Stock?
If you are unfamiliar with the secondary offering news, here’s what you need to know.
Essentially, the plan was scrapped after UWMC stock tanked following news of the offering. Before the termination announcement, shares had declined 22% in the month to date and hit a 52-week low on Thursday. SFS Holding decided that it wasn’t worth selling their shares at those prices, resulting in the termination.
UWM’s CEO Mat Ishbia shed more light on the situation, stating:
“I was also willing to have SFS sell additional shares to the Company at the same time and price to make good on our buyback commitment and reduce the number of shares outstanding without also decreasing the public float. Unfortunately, while there was more than enough demand from potential investors, the overall market conditions were such that the prices offered were not at levels that I will entertain.”
UWM also announced that it would accelerate its stock buyback program, although exact details were not released at this time. The company plans on increasing its public float at a later time.
While this is certainly great news for shareholders of UWMC stock, the company hasn’t exactly been having a good year. Shares of UWMC have plummeted 57% in the year to date (YTD), compared with the S&P 500’s return of 27% during the same period.
Should You Invest in UWM?
UWM operates as one of the largest mortgage brokerage firms in the U.S with a market capitalization of $10.6 billion. However, the Federal Reserve recently announced that it would be decreasing its purchases of mortgage-backed securities (MBS), and that the possibility of several rate hikes in 2022 is more than likely.
These factors certainly cast a bleak shadow over UWM’s business processes, as higher rates will negatively affect loan origination volume. Going forward, investors should keep a watchful eye on how UWM’s management reacts to key macroeconomic events and interest rate hikes.
On the date of publication, Eddie Pan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
